Proof.
Assume $f : X \to S$ is locally of finite presentation and formally smooth. Consider a commutative diagram
\[ \xymatrix{ U \ar[d] \ar[r]_\psi & V \ar[d] \\ X \ar[r]^ f & Y } \]
where $U$ and $V$ are schemes and the vertical arrows are étale and surjective. By Lemma 76.19.5 we see $\psi : U \to V$ is formally smooth. By Morphisms of Spaces, Lemma 67.28.4 the morphism $\psi $ is locally of finite presentation. Hence by the case of schemes the morphism $\psi $ is smooth, see More on Morphisms, Lemma 37.11.7. Hence $f$ is smooth, see Morphisms of Spaces, Lemma 67.37.4.
Conversely, assume that $f : X \to Y$ is smooth. Consider a solid commutative diagram
\[ \xymatrix{ X \ar[d]_ f & T \ar[d]^ i \ar[l]^ a \\ Y & T' \ar[l] \ar@{-->}[lu] } \]
as in Definition 76.19.1. We will show the dotted arrow exists thereby proving that $f$ is formally smooth. Let $\mathcal{F}$ be the sheaf of sets on $(T')_{spaces, {\acute{e}tale}}$ of Lemma 76.17.4 as in the special case discussed in Remark 76.17.6. Let
\[ \mathcal{H} = \mathop{\mathcal{H}\! \mathit{om}}\nolimits _{\mathcal{O}_ T}(a^*\Omega _{X/Y}, \mathcal{C}_{T/T'}) \]
be the sheaf of $\mathcal{O}_ T$-modules on $T_{spaces, {\acute{e}tale}}$ with action $\mathcal{H} \times \mathcal{F} \to \mathcal{F}$ as in Lemma 76.17.5. The action $\mathcal{H} \times \mathcal{F} \to \mathcal{F}$ turns $\mathcal{F}$ into a pseudo $\mathcal{H}$-torsor, see Cohomology on Sites, Definition 21.4.1. Our goal is to show that $\mathcal{F}$ is a trivial $\mathcal{H}$-torsor. There are two steps: (I) To show that $\mathcal{F}$ is a torsor we have to show that $\mathcal{F}$ has étale locally a section. (II) To show that $\mathcal{F}$ is the trivial torsor it suffices to show that $H^1(T_{\acute{e}tale}, \mathcal{H}) = 0$, see Cohomology on Sites, Lemma 21.4.3.
First we prove (I). To see this choose a commutative diagram
\[ \xymatrix{ U \ar[d] \ar[r]_\psi & V \ar[d] \\ X \ar[r]^ f & Y } \]
where $U$ and $V$ are schemes and the vertical arrows are étale and surjective. As $f$ is assumed smooth we see that $\psi $ is smooth and hence formally smooth by Lemma 76.13.5. By the same lemma the morphism $V \to Y$ is formally étale. Thus by Lemma 76.13.3 the composition $U \to Y$ is formally smooth. Then (I) follows from Lemma 76.13.6 part (4).
Finally we prove (II). By Lemma 76.7.15 we see that $\Omega _{X/S}$ is of finite presentation. Hence $a^*\Omega _{X/S}$ is of finite presentation (see Properties of Spaces, Section 66.30). Hence the sheaf $\mathcal{H} = \mathop{\mathcal{H}\! \mathit{om}}\nolimits _{\mathcal{O}_ T}(a^*\Omega _{X/Y}, \mathcal{C}_{T/T'})$ is quasi-coherent by Properties of Spaces, Lemma 66.29.7. Thus by Descent, Proposition 35.9.3 and Cohomology of Schemes, Lemma 30.2.2 we have
\[ H^1(T_{spaces, {\acute{e}tale}}, \mathcal{H}) = H^1(T_{\acute{e}tale}, \mathcal{H}) = H^1(T, \mathcal{H}) = 0 \]
as desired.
$\square$
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